What is a significant feature of a Disability Buy-Sell agreement?

A Disability Buy-Sell agreement is specifically designed to ensure that a business can continue operating smoothly in the event that an owner or partner becomes disabled. This agreement provides a structured approach to facilitating the transfer of ownership interests when a partner is unable to participate in the business due to disability. By establishing a funding mechanism for partner buyouts, the agreement ensures that the continuing partners can purchase the interest of the disabled partner without financial strain, which helps maintain business stability and prevents potential conflicts among remaining owners.

This funding mechanism commonly involves disability insurance policies that pay out when a trigger event occurs, enabling the business to buy out the disabled partner’s share at a predetermined value. This feature is essential because it provides financial security for the business and helps protect both the interests of the disabled partner and the remaining partners.

The other options relate to aspects of business insurance but do not accurately describe the primary purpose of a Disability Buy-Sell agreement. For instance, covering liability claims or protecting against natural disasters speaks to other forms of insurance, while providing income to employees during a disaster pertains to different employee benefit plans rather than ownership transition.